The Flight Centre Travel Group Ltd (ASX: FLT) share price will be on watch on Monday after an after-hours announcement revealed that it has made new investments in key growth areas
What has Flight Centre invested in?
Flight Centre has agreed to acquire Silicon Valley-based Casto Travel’s United States operations for an undisclosed fee.
Management explained that it believes the deal will strengthen its rapidly growing United States business, which now rivals the UK as the company’s largest profit generator outside Australia. Furthermore, it has enhanced the company’s corporate travel footprint, given Silicon Valley’s size and importance as a global corporate travel hub.
Flight Centre has also given its emerging in-destination travel experiences network a boost by signing a 10-year agreement to lease the four-star Camakila Legian Bali hotel.
This beach-front property is already popular with the company’s leisure customers and complements its acquisition of hotel management group Bespoke Hotel Management Asia last year, which manages an emerging hotel portfolio in Thailand, Vietnam, and Bali.
Managing director Graham Turner believes the new businesses are significant additions to the company’s increasingly diverse global network.
He said: “Across our major geographies, we are investing in three key business sectors that we see as key future growth drivers globally.” These are leisure travel businesses, corporate travel businesses, and emerging travel experiences network businesses.
Mr Turner sees significant potential in the corporate travel market, especially after the acquisition of the Casto business.
He said the acquisition “will give us greater scale in Silicon Valley and in the large West Coast market, where we previously had a relatively small corporate travel presence, while also complementing our larger operations on the East Coast and in other key locations.
Before adding: “We now have a corporate travel presence in more than 20 US cities and there are significant future opportunities, given our strong growth trajectory and the size of the market, which is estimated to be worth more than $US300billion per year.”
Should you invest?
I think this was a good move by management and expect the Casto acquisition to put it in a position to challenge Corporate Travel Management Ltd (ASX: CTD) in the U.S. market and give its sales a boost in the coming years.
While my first preference in the travel industry remains Webjet Limited (ASX: WEB), I do think that Flight Centre’s shares are looking attractive again now they are trading at 16x trailing earnings. This could make it worth considering an investment this week.
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.